September 10, 2009 / 2:06 PM / 8 years ago

Surge in Canadian imports boosts talk of recovery

OTTAWA (Reuters) - Canada posted a near-record trade deficit in July, but analysts said a surge in imports in the month was a sign the economy was starting to recover from the global meltdown.

Statistics Canada said on Thursday that the deficit hit $1.43 billion on sharply higher imports of machinery, automotive and energy products. Exports were also up, but at a more modest pace.

Analysts had predicted Canada would run a surplus of $100 million in July. The deficit was the second highest on record, beaten only by the $1.45 billion notched up in May this year.

Imports increased by 8.3 percent from June to $31.73 billion, reflecting a 10.9 percent increase in machinery and equipment imports, an 18.7 percent jump in automotive products as well as an 18.6 percent rise in energy products.

"The solid and broad-based gains in both export and import volumes are another sign the Canadian recovery is indeed taking hold," said Douglas Porter, deputy chief economist at BMO Capital Markets.

Exports rose by 3.3 percent to $30.31 billion, largely because of higher shipments of machinery and equipment and automotive products. Exports of energy products shrank by 3.2 percent, largely from an 8.9 percent drop in crude petroleum.

"Details of the report suggest that the economy is coming back to life, despite the deficit ... the composition of both imports and exports suggests that the Canadian trade dynamics improved in July," said Charmaine Buskas, economics strategist at TD Securities.

Analysts doubted the trade figures would persuade the Bank of Canada to break its promise to leave interest rates at record lows until next year to help stimulate the economy. Shortly after the statistics were released, the central bank said rates would indeed stay where they are.

That helped push the Canadian dollar to as high as $1.0816, or 92.46 U.S. cents, up from $1.0858, or 92.10 U.S. cents, just before the bank's announcement.

Exports to the United States, which in July took 73 percent of all Canadian exports, increased by 2.5 percent, but were overshadowed by a 9.9 percent increase in imports. Canada's trade surplus with the United States in July fell to $1.94 billion from $3.23 billion in June.

"It is necessary to look beyond the widening in the deficit and see through to the rapid acceleration in trade volumes which is indicative of a pickup in economic activity," said Stewart Hall, an economist at HSBC Securities.

"By all appearances, the month of July finds Canada riding on the cusp of economic recovery."

That said, the data also showed the damage done to the Canadian economy by the economic turmoil that has ravaged its neighbor. Exports to the United States in July were down by 35.2 percent from July 2008.

($1=$1.08 Canadian)

Reporting by David Ljunggren; editing by Peter Galloway

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